Marketing Mix - Price Flashcards
What are pricing strategies?
Price is how much is charged for the actual product. It is important because customers will not buy if the cost is too high
The price charged should allow the business to cover its costs and also to make a profit.
What is the pricing strategy:Low Price?
The price charged is lower than the price charged by competitors.
The product will be purchased by customers because it is cheaper than others.
What is the pricing strategy: High Pricing?
The price charged is higher than the price charged by competitors.
The product will be bought by customers because they perceive it to be of higher quality than competitors at a lower price.
What is the pricing strategy: Promotional Pricing?
Offering a lowerpricetemporarily inorderto enhance theeffectivenessofproductsalesefforts tocostsensitiveconsumers.
For example, manybusinesseswillofferpromotional pricing as a salesincentivewhen initially launching a particularproduct lineto potential consumers
What is the pricing strategy: Cost Plus Pricing
A cost-based method for setting the prices of goods and services. Under this approach, you add together the direct material cost, direct labour cost, and overhead costs for a product, and add to it amark-uppercentage (to create a profit margin) in order to derive the price of the product
What is the pricing strategy: Psychological Pricing?
Based on the theory that certain prices have a psychological impact. The retail prices are often expressed as “odd prices”: a little less than a round number, e.g. £19.99 or £2.98.
Consumers tend to perceive “odd prices” as being significantly lower than they actually are, tending to round to the next lowest monetary unit. Thus, prices such as £1.99 are associated with spending £1 rather than £2. The theory that drives this is that lower pricing such as this institutes greater demand than if consumers were perfectly rational.
What is the pricing strategy: Market Skimming?
The practice of ‘price skimming’ involves charging a relatively high price for a short time where a new, innovative, or much-improved product is launched onto a market.
The objective with skimming is to “skim” off customers who are willing to pay more to have the product sooner; prices are lowered later when demand from the “early adopters” falls.
The success of a price-skimming strategy is largely dependent on the inelasticity of demand for the product either by the market as a whole, or by certain market segments.
What is the pricing strategy: Premium Pricing?
A premium pricing strategy involves setting the price of a product higher than similar products. This strategy is sometimes also called skim pricing because it is an attempt to “skim the cream” off the top of the market.
It is used to maximize profit in areas where customers are happy to pay more, where there are no substitutes for the product, where there are barriers to entering the market or when the seller cannot save on costs by producing at a high volume
What is the pricing strategy: Destroyer Pricing?
Destroyer pricingis an illegal practice where firms lower their prices to such a damaging level that they run at a loss. They do this in order to put their competitors out of the market. An infamous case was when The Times newspaper was on sale for just 10p. This damaged rivals and was deemed unfair.
What is the pricing strategy: Loss Leader?
The use of a loss leader is to drawcustomersinto a store where they are likely to buy other goods.
The vendor expects that the typical customer will purchase other items at the same time as the loss leader and that the profit made on these items will be such that an overall profit is generated for the vendor.
What is the pricing strategy: Penetrating Pricing?
You often see the “special introductory offer” – the classic sign of penetration pricing. The aim of penetration pricing is usually to increase market share of a product, providing the opportunity to increase price once this objective has been achieved.
Penetration pricing is the pricing technique of setting a relatively low initial entry price, usually lower than the intended established price, to attract new customers. The strategy aims to encourage customers to switchto the new product because of the lower price – once this happens the price can be increased.
What is the pricing strategy: Competitive pricing?
Pricing the product similar to competition.
Attracts customers and allows businesses to compete in the market.
What is a conclusion to pricing?
Business need to think carefully about which pricing strategy to use. Certain strategies can be very short term and others long term.
Market skimming and premium pricing for example can be used for unique and excusive products. Whereas in competitive markets competitive or destroyer pricing can be used in the hope it will remove competition from the market.
Businesses constantly review the prices they charge because they all operate in a market that does not stand still. Changes in demand because of external factors are common such as pressure from customers to lower prices and also competitor movement.
